Company Perspectives:

The Alberto-Culver Company is dedicated to building, for the long term, profitable businesses and substantial brands which are recognized for bringing innovation and value to consumers and an excellent return to shareholders.
Key Dates:

St. Ives Laboratories Inc., with its St. Ives Swiss Formula brand, is acquired.

2000:

Pro-Line Corporation is acquired.

Company History:

Alberto-Culver Company markets a range of toiletry, grocery, and household brands. Its flagship brand is the Alberto VO5 line of hair care products. Other products include the St. Ives Swiss Formula hair care and skin care line, the TRESemmé hair care line, the FDS feminine hygiene line, Mrs. Dash spices, Molly McButter sprinkle-on butter substitute, Static Guard antistatic spray, and several brands of ethnic-specific personal care products. Generating more than half of the company's revenues is the Sally Beauty Company unit, the largest distributor of professional beauty products in the world, with more than 2,250 outlets and a distribution network catering to salon professionals and beauticians. Alberto-Culver has done well as a moderate-sized, family-run company in an industry of giants primarily through introducing new products and aggressively advertising them, and by making carefully selected acquisitions.

1955--69: From Alberto VO5 to Sally Beauty

The company dates back to the 1950s. Under the harsh, hair-frying lights of Hollywood motion picture studios, word was spreading about a product named after the chemist who invented it: Alberto VO5 Conditioning Hairdressing. With a unique water-free, five-oil formula, VO5 had been developed at the request of studios and had proven successful at rescuing hair from dryness and damage. In 1955 Leonard H. Lavin borrowed $400,000 and bought the small beauty supply firm that manufactured VO5. This regional Los Angeles-based company also made more than 100 other products, but Alberto VO5 made up 85 percent of its sales. After buying the firm, Lavin dropped its other products, relocated to Chicago, and concentrated on VO5. He was just 36 years old at the time and his wife, Bernice, joined the company as secretary-treasurer. The Alberto-Culver Company had five employees on the production line and two employees in sales for its first year of operation.

The first television commercial for VO5 ran in Pennsylvania in 1955. It marked the company's first year of operation and the start of a company mainstay--aggressive marketing. In three years, sales were more than $5 million. By 1958 Alberto VO5 Conditioning Hairdressing had raced to the top of its category, outselling many sizable competitors. In 1956 and 1959 some other products were added to the line, and TRESemmé--a regional line of hair colors--was purchased. TRESemmé later grew to include a best-selling professional mousse. Then in 1961 and 1962, Alberto VO5 Hair Spray and Alberto VO5 Shampoo were introduced and, along with Alberto VO5 Conditioning Hairdressing, became the financial cornerstones of the company.

The 1960s were a time of explosive growth. The company went public in 1961, trading stock over the counter. A new plant and corporate offices were built in Melrose Park, Illinois, in 1960, and a plant opened in Canada in 1961. That same year, an international division was formed to sell products in Mexico, England, Australia, Guatemala, and elsewhere. Company sales surged to $25 million in 1961, then boomed to $61 million in 1962. By 1963 Alberto-Culver was ranked second among advertisers of hair care products. The results were evident: in 1964 sales were still climbing, exceeding more than $100 million. Company stock was listed on the New York Stock Exchange in 1965.

Other products were introduced in the mid-1960s. Consort Hair Spray was the first product of its kind made specifically for men. New Dawn Hair Color was the first shampoo-in permanent hair color on the retail market. The first feminine deodorant spray, FDS, was introduced in 1966 and has been a leader in that product category ever since--despite a dip in sales following the hexachlorophene scare of the early 1970s. Kleen Guard Furniture Polish went on sale in 1966, and new manufacturing operations were initiated in Mexico and Puerto Rico. By 1967 Alberto-Culver Company had more than 2,000 employees and sold products in more than 65 countries.

Alberto-Culver acquired several companies toward the end of the 1960s. The first was SugarTwin, a low-calorie sugar substitute sold regionally as part of Alberto-Culver's Food Service Division. The company slashed SugarTwin's calories in half and released it into national distribution, along with Brown SugarTwin, the first low-calorie granulated brown sugar replacement. These items were credited with much of the growth of the food sector of Alberto-Culver. With the federal ban on cyclamates and the conversion to a saccharin formula, SugarTwin's double-digit growth slowed, but it remained a profitable brand for the company.

In 1969 Alberto-Culver acquired Milani Foods and Sally Beauty Company, Inc. Milani represented a range of food products sold to restaurants, hospitals, and other institutions. Milani was folded into Alberto-Culver's Food Service Division and marketed about 400 items, including food bases, beverages, soups, and dressings. Sally Beauty Company was not unlike Alberto VO5: a concept with a lot of promise. At the time Alberto-Culver purchased it, Sally Beauty consisted of one store and nine independent franchises that sold professional products for hair stylists and barbers. The franchises were closed, and Alberto-Culver developed a new merchandising strategy. This eventually bloomed into more than 1,000 company-owned and -operated outlets. Located mostly in shopping centers, with some 40 outlets in the United Kingdom, Sally Beauty Supply stores offered thousands of salon products and appliances to professionals as well as retail customers.

New Products and Acquisitions in the 1970s and 1980s

Alberto-Culver had another significant first in 1972: it won the fight for 30-second commercials. By buying standard 60-second slots, then dividing them to run two separate commercials for different products, the company caused an uproar. Networks balked and ad agencies scoffed, but before long, the 30-second commercial was an industry standard.

Alberto-Culver's hair care line seemed to reach its peak in the early 1970s. Sales were down in 1974, although company products were being sold in more than 100 countries, and a new food plant had been built in Melrose Park. Earnings were hard hit at this time by OPEC (Organization of Petroleum Exporting Countries) price increases that impacted petroleum-based raw material costs. After a decade of dizzying growth, the slump was alarming. As a result, money was redirected into new products.

Meanwhile, Alberto-Culver Company had developed an ethnic hair care line, TCB. It was launched in 1975 with eight products and grew to include 36 products considered leaders in domestic retail and professional markets as well as selling solidly abroad. The first 60-second hot oil deep conditioner, Alberto VO5 Hot Oil Treatment, was introduced in 1976 and became the country's number one selling brand. Static Guard, the first antistatic spray, was presented that same year and became a best-seller. Then in 1977, Alberto VO5 Hair Spray became the first nationally advertised premium brand to introduce an aerosol free of chlorofluorocarbons. According to Lavin, the company preferred to develop original products rather than copy products already on the market, a strategy that would require heavy investment to promote over competitors' . Alberto-Culver thus earned a reputation for innovation and for spending generously to promote the products it developed.

Another aspect of Alberto-Culver's comeback effort was the 1977 acquisition of the John A. Frye Shoe Company. Then a maker of western leather boots, Frye grew to include hand-sewn men's shoes and belts as well as products for women and children. In the 1980s Frye boots were nearly staple items, and by 1981 Frye accounted for 19 percent of Alberto-Culver's revenues. Following its established recipe for success, the company took Frye's regional name recognition and aggressively advertised and distributed its products. In 1980 Phillippe of California was acquired, along with its line of handbags. Phillippe underwent the same transformation as Frye, including the addition of a line of small leather accessories; within a year Phillippe was contributing five percent of the company's total sales. By 1986, however, Frye and Phillippe of California were both sold after accumulating $16 million in losses over three years. Alberto-Culver thereby returned to its core toiletries business.

A high degree of brand loyalty continued to make the Alberto VO5 hair care line a stable one. In 1982 it represented about a third of total Alberto-Culver sales. Research and marketing efforts were paying off in the company's other divisions. In 1983 Mrs. Dash--the first herb and spice alternative to salt--was introduced and went on to dominate sales in its category. This set the tone for a series of new healthful products in the Household/Grocery Products Division, including the first all-natural butter-flavor powder, Molly McButter, released in 1987.

Also performing well in the mid-1980s was Sally Beauty Company, which boasted 145 outlets by 1983, making it the nation's largest wholesaler of barber and beauty supplies. That same year, Alberto-Culver acquired Indola Cosmetics B.V., a prominent Dutch firm well known throughout Europe for products used by professional hairdressers. At first financially unsuccessful, Indola was extensively revamped, and its line was expanded to include all aspects of salon service, such as perms, hair colors, and specialty products. In 1990 it began to perform better and was making a fresh entrance into markets in Spain, Australia, and the Far East.

Alberto-Culver's sales improved in 1984, when they topped $400 million. Compared with such hair industry giants as Procter & Gamble and Bristol-Myers, Alberto-Culver was tiny, but tough. Unable to compete with the industry goliaths in the areas of promotion, advertising, sales force, and recoverable losses, Alberto-Culver had to rely on sharp-wittedness and timing. In addition to its many firsts in products, the company distinguished itself as an innovator in advertising. After championing the 30-second commercial, Alberto-Culver again entered the ring to fight for the 15-second commercial. This battle actually led to a threatened class-action antitrust suit against the larger station group owners in broadcasting who refused to carry the split 30-second commercials. The suit was dropped when the restrictions against the ads were dropped. This was a significant win for companies of Alberto-Culver's size, which were pinched by the high advertising costs that larger firms could more easily afford.

Although still for the most part a family-owned company in 1986--the Lavin family controlled about 45 percent of the stock--Alberto-Culver that year offered a new class of common stock with reduced voting rights. Lavin had his eye on several possible acquisitions. When sales topped $500 million in 1987, Alberto-Culver joined the ranks of the Fortune 500. The advance in revenue also led to a 37 percent leap in net income, a sign that the company was on the right track. Sally Beauty was thriving at this time, with 470 stores and successful overseas sales, making it the largest international beauty supply company in the world.

Extending its tradition for niche-building, Alberto-Culver introduced its Bold Hold Styling Line in 1988. Targeted at teens, the products included Scrunch Spritz, Frizz Taming Mousse, and Mega Gel, all helping to achieve the latest in hair-styling trends. Meanwhile, the company's overseas sales and profits were reaching record levels. That same year, company founder Leonard Lavin relinquished the title of president and chief operating officer to his son-in-law Howard Bernick, then the company's chief financial officer; Lavin remained chairman and chief executive officer. Bernick joined Alberto-Culver in 1977. His wife, Carol Bernick, was Lavin's daughter and head of the company's New Products Division.

1990s Marked by Acquisitions and International Expansion

In 1990 the strongest growth area for Alberto-Culver continued to be international sales and the Sally stores, which grew to nearly 900 outlets that year. The company enjoyed a solid market in Canada and England. As the domestic economy forced retailers to cut back on inventory levels, the marketplace at home was more competitive than ever. Because of the expense of opening new stores, Alberto-Culver slowed the Sally store openings in 1990. In 1989 175 stores that had been owned and operated as Safeway Stores were purchased and converted. In 1990 the company said it would be opening only about 75 stores.

Papa Dash Lite Salt, which was introduced in 1991, was the first to meet the government's low-sodium guidelines. Containing no potassium chloride, Papa Dash used an agglomeration technology to bond real salt molecules onto the surface of tiny carbohydrate particles, thus providing the taste of salt without the excess sodium.

Alberto-Culver was ranked 396th in the Fortune 500 in 1991. Also that year, the company agreed to drop the 'ozone friendly' label from its aerosol hair products, which, while containing no ozone-depleting chlorofluorocarbons, did feature other propellants such as propane and isobutane, which were harmful to the atmosphere. Without admitting wrongdoing or inaccuracy, the company paid $50,000 in costs as part of a settlement with ten state attorneys general. Alberto-Culver purchased Cederroth International AB, a Swedish producer of health and hygiene goods, in 1991. Among the brands acquired were Salvekvick adhesive bandages, Samarin antacids, Seltin salt substitute, and Latacyd skin soaps and shampoos. Cederroth also provided a vehicle for introducing the Alberto VO5 line into Scandinavia.

When sales rose again in 1992, and profits improved considerably in the toiletries and household/grocery divisions, Alberto-Culver Company attributed its decision to plump up advertising spending that year to a desire to overcome the weak market. Alberto-Culver crossed the billion dollar mark in sales that year.

By 1994 revenues had reached $1.22 billion, and profits were a record $44.1 million. The company's growth and profits continued to be driven by Sally Beauty rather than the personal care and household products. By this time there were nearly 1,400 Sally stores, with plans being made to extend the chain in Japan in 1995. Meanwhile, in October 1994, Bernick was named CEO with Lavin retaining the chairmanship. Bernick initiated a major restructuring that divided the company into three business units: Alberto-Culver USA (later called Alberto-Culver North America), Alberto-Culver International, and Sally Beauty. Each unit was given its own president with a great deal of autonomy. Sally Beauty had already been operating in this manner quite successfully, and Bernick hoped that the extension of this strategy would help revitalize the other product lines. Carol Bernick was named president of Alberto-Culver USA.

To fuel growth outside of Sally Beauty, Howard Bernick focused on carefully targeted acquisitions. In April 1995 Alberto-Culver acquired another Swedish firm, Molnlycke Toiletries, whose lines of personal care and household products--which generated about $100 million in annual sales--were rolled into Cederroth International. Cederroth was now one of the leading marketers of packaged consumer goods in Scandinavia. In February 1996 Alberto-Culver made its largest acquisition yet when it paid $110 million for St. Ives Laboratories Inc., the Chatsworth, California-based maker of hair care and skin care products under the St. Ives Swiss Formula brand. The addition of Molnlycke and St. Ives quickly provided Alberto-Culver with a significant presence in the skin care market for the first time. The St. Ives acquisition also highlighted the company's move into the burgeoning area of personal care products featuring natural ingredients. Around the time of the purchase, Alberto-Culver was rolling out Alberto VO5 Naturals and TCB Naturals.

Sally Beauty entered the Canadian market in 1998. For 1999, sales at Sally passed the $1 billion mark for the first time. There were now more than 2,150 Sally outlets worldwide, with the international network including Canada, Germany, Japan, and the United Kingdom. The Beauty Systems Group, the distribution arm of Sally Beauty, expanded in late 1999 and early 2000 through the acquisitions of Heil Beauty Supply, based in Paducah, Kentucky, with annual sales of more than $30 million; Macon Beauty Supply, a distributor based in Macon, Georgia, with annual sales of $40 million; and Davidson Supply Company, a Laurel, Maryland-based distributor with sales of $65 million. Annual sales for the Beauty Systems Group approached $400 million following these deals, representing about one-third of overall Sally Beauty revenues.

Acquisitions continued in the international arena as well. In 1999 Alberto-Culver bought La Farmaco Argentina I. y C.S.A., producer of leading lines of deodorant body powders (Veritas) and glycerin soaps (Farmaco). The company planned to use the manufacturing and distribution facilities of this Argentine firm to locally produce such brands as Alberto VO5 and St. Ives for sale across Latin America. A push into the markets of central and Eastern Europe was aided by the March 2000 acquisition of Soraya, S.A., a maker of skin care products in Poland. That same month, Alberto-Culver extended its ethnic personal care lines through the acquisition of Dallas, Texas-based Pro-Line Corporation, a leader in personal care products for the African American market through such brands as Soft & Beautiful and Just for Me. When combined with the existing brands--TCB and recently introduced Motions--Pro-Line propelled Alberto-Culver into the number two position among the world's makers of hair care products for African Americans. In May 2000 Alberto-Culver restructured its North American operations into three product-centered groups: Alberto Personal Care Products, which would include hair and skin care products; Culver Specialty Brands, spices and household products; and Pro-Line International, ethnic personal care products. Alberto-Culver International was likewise divided into three units. This restructuring signaled a possible slowdown in the firm's steady stream of acquisitions, with integration of the various new units taking precedence.